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ARC Loans Offer Small Businesses $35,000 For "Immediate Hardship"

Small businesses that have been recently profitable but are having trouble meeting debt payments can now apply for Small Business Administration-backed bridge loans to help. These loans are designed to keep otherwise viable companies from sinking because of “immediate financial hardship.”

The ARC Loan program (for America’s Recovery Capital) offers up to $35,000 in interest-free financing that business owners can use to pay short-term debt obligations that they’d otherwise be unable to meet: loan payments, business credit cards, leases, payments to suppliers, etc. The SBA doesn’t make the loans directly — banks and other lenders do. But the SBA pays interest to the lender and guarantees 100% of the loan. Small businesses can use ARC loans to cover up to six months of payments on another debt. After six months, the borrower’s repayment is deferred for a year, and then repayment of the principal will be spread out over as much as five years.

So, you could borrow $30,000 to make your $5,000 commercial mortgage payment for the next six months. You won’t have to start repaying the $30,000 until a year after your last disbursement. Then the repayment would be spread over five years, with monthly payments of $500. The SBA pays the lender prime+2% interest for the life of the loan.

Eligible businesses need to have positive cash flow in at least one of the last two years. Two-year projections should reasonably show that the company can make all its payments, including ARC repayments. And the funds can’t be used to pay any debt that’s more than 60 days past due. Businesses also have to show evidence of immediate hardship, like a drop in sales, trouble meeting payroll, or a credit line cut off.

The SBA will finance up to 10,000 ARC loans, says SBA spokesman David Hall. That doesn’t sound like much, but I’m not sure how many companies fit into the narrow range that these loans target. They’re not intended to be life support for businesses that would fail in two years anyway, nor are they meant to be attractive financing for companies that don’t need it. Hall said there has been lots of interest in the program since it was announced.

There’s some question whether banks will participate, especially because they’re not allowed to charge fees on ARC loans. (Will the banks that took bailout funds themselves really refuse to make these 100% guaranteed loans because they’re not profitable enough?) More from the Wall Street Journal.

The basics are here. To apply for an ARC Loan, the SBA says you should contact your lender directly. To reach an SBA rep to learn more, fill out this form.

The SBA doesn’t have any numbers yet on how many applications are coming in. If you’re trying to get one of these for your business, let us know what your experience is like. Is your bank participating? Is your company eligible? Will the loan really help? And how long will it take to get it? Tell us in comments below.